Tuesday, November 08, 2016

The Supreme Court on Tuesday weighed whether cities can sue banks under the Fair Housing Act for predatory lending, even if foreclosures that stem from such loans affect a city only indirectly.

The case before the justices was brought by Miami after the 2008 financial crisis. The city said that discriminatory mortgage lending practices by Bank of America and Wells Fargo had led to a disproportionate number of defaults by minority home buyers and, in turn, to financial harm to the city.

“We are aggrieved in every sense of the word by the discrimination that was propounded here,” said Robert S. Peck, a lawyer for the city.

The justices appeared divided over whether Miami’s asserted injuries were enough to allow it to sue under the housing law.

Justice Elena Kagan said the law was a “distinctive kind of anti-discrimination statute, which really is focusing on community harms.”

“Here the cities are standing up and saying, ‘Every time you do this redlining and this reverse redlining, essentially a community is becoming blighted.’ And who better than the city to recognize that interest and to assert it?” she asked.

Chief Justice John G. Roberts Jr. appeared to disagree, telling Mr. Peck that the harms Miami claimed to have suffered were secondhand.

“Your injuries are derivative of the injury to the homeowners who had the subprime mortgages and who suffered the foreclosure and so on,” the chief justice told him. “I understand your argument that you’re down the line, but I don’t see how you can say that your loss of property taxes is a direct injury.”

Other justices worried that a ruling for Miami would allow all sorts of people and entities to sue for indirect harm from discriminatory practices. Justice Kagan asked about restaurants and dry cleaners, Justice Sonia Sotomayor about corner grocers and Justice Stephen G. Breyer about “a magazine that writes about successes in integration and wants to write about this community before it got wrecked or whatever.”